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Optimal Sharing Rules in Repeated Partnerships

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  • Hajime Kobayashi

    ()
    (College of Economics, Osaka Prefecture University)

  • Katsunori Ohta

    ()
    (Faculty of Economics, Wakayama University)

  • Tadashi Sekiguchi

    ()
    (Institute of Economic Research, Kyoto University)

Abstract

We study a simple model of repeated partnerships with noisy outcomes. Two partners first choose a sharing rule, under which they start their repeated interaction. We characterize the sharing rule which supports the most efficient equilibrium, and show that it suffices to consider two particular sharing rules. One is an asymmetric sharing rule, which induces only a more productive partner to work. It is optimal for impatient or less productive partners. The other treats them more evenly, and prevails for more productive and patient partners. Those results indicate how technological parameters and patience determine the role of a more productive partner. If the partners become more productive or more patient, the productive partner ceases to be a residual claimant and sacrifices his own share, in order to foster teamwork.

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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 650.

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Length: 23pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:kyo:wpaper:650

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  1. Aoki, Masahiko, 1994. "The Contingent Governance of Teams: Analysis of Institutional Complementarity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 657-76, August.
  2. Harrington, Joseph Jr., 1989. "Collusion among asymmetric firms: The case of different discount factors," International Journal of Industrial Organization, Elsevier, vol. 7(2), pages 289-307, June.
  3. Michihiro Kandori, 2001. "Randomization, Communication and Efficiency in Repeated Games with Imperfect Public Monitoring," CIRJE F-Series CIRJE-F-139, CIRJE, Faculty of Economics, University of Tokyo.
  4. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine.
  5. Abreu, Dilip & Milgrom, Paul & Pearce, David, 1991. "Information and Timing in Repeated Partnerships," Econometrica, Econometric Society, vol. 59(6), pages 1713-33, November.
  6. Che,Y.K. & Yoo,S.W., 1998. "Optimal incentives for teams," Working papers 8, Wisconsin Madison - Social Systems.
  7. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
  8. Michihiro Kandori & Ichiro Obara, 2003. "Efficiency in Repeated Games Revisited: The Role of Private Strategies," UCLA Economics Working Papers 826, UCLA Department of Economics.
  9. Legros, Patrick & Matsushima, Hitoshi, 1991. "Efficiency in partnerships," Journal of Economic Theory, Elsevier, vol. 55(2), pages 296-322, December.
  10. Luis Rayo, 2007. "Relational Incentives and Moral Hazard in Teams," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 937-963.
  11. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March.
  12. Radner, Roy & Myerson, Roger & Maskin, Eric, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 59-69, January.
  13. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  14. Matsushima, Hitoshi, 1989. "Efficiency in repeated games with imperfect monitoring," Journal of Economic Theory, Elsevier, vol. 48(2), pages 428-442, August.
  15. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
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Cited by:
  1. Bogumił Kamiński & Maciej Łatek, 2010. "Tradeoff between Equity and Effciency in Revenue Sharing Contracts," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 2(1), pages 1-16, January.

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